Deficit plan could go awry, warns IFS
By Richard Johnstone | 15 March 2012
The chancellor’s plans to reduce the deficit continue to be beset by risks, the Institute for Fiscal Studies has warned.
Addressing the fifth World Class Performance Symposium in London today,
IFS programme director Gemma Tetlow said there was still a risk that
George Osborne would be unable ‘to implement the spending cuts as
There was also potential for the eurozone crisis to affect the plan to plug the £114bn hole in the public finances, she added.
delegates at the symposium, hosted by CIPFA and the Treasury, that 80%
of the deficit plan relied on spending reductions. But most of these
were not yet in place and were being spread over the years to 2016/17.
a risk that the government ‘won’t be able to introduce the spending
cuts as planned’, she said. However, the tax rises that make up the
remaining 20% had already been introduced, she added.
speaking after ratings agency Fitch today became the second firm to put
the UK’s credit rating on negative outlook, increasing the possibility
of it losing its top triple-A rating in the next two years. Moody’s changed its outlook for the UK to negative last month.
said the government’s consolidation plans were ‘credible’, and praised
‘the progress made in reducing the government's structural budget
It also acknowledged that UK banks were
‘relatively well placed to absorb future episodes of financial market
turmoil’, such as any fallout from the eurozone crisis.
its report added that, due to the current debt levels, there was ‘very
limited fiscal space to absorb further adverse economic shocks... and a
potentially weaker than currently forecast economic recovery’.
that ‘in light of the considerable uncertainty around the economic and
fiscal outlook, including the risks posed to economic recovery... the
negative outlook indicates a slightly greater than 50% chance of a
downgrade over a two-year horizon’.
A downgrade could
be triggered if there was a ‘material downward revision of the
assessment of the UK's medium-term growth potential’, it said.
independent Office for Budget Responsibility is set to provide its
latest forecasts for UK growth alongside next week’s Budget statement.